Financial Reporting Issues: What s New and What s Coming

Transcription

1 Financial Reporting Issues: What s New and What s Coming Russ Madray Scholar-in-Residence May 22, Elliott Davis, PLLC 2014 Elliott Davis, LLC

2 This material was used by Elliott Davis during an oral presentation; it is not a complete record of the discussion. This presentation is for informational purposes and does not contain or convey specific advice. It should not be used or relied upon in regard to any particular situation or circumstances without first consulting the appropriate advisor. No part of the presentation may be circulated, quoted, or reproduced for distribution without prior written approval from Elliott Davis. 2

3 Financial Reporting Issues: What s New and What s Coming Recent accounting guidance Impact of Private Company Council issues NFP financial statements project 3

4 Recent Accounting Guidance ASU , Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows ASU , Services Received From Personnel of an Affiliate ASU , Service Concession Arrangements 4

5 ASU , Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows 5

6 ASU , Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows Effective prospectively for fiscal years, and interim periods within those years, beginning after June 15, 2013 Retrospective application to all prior periods presented upon the date of adoption is permitted Adopting the guidance early from the beginning of the fiscal year of adoption is permitted 6

7 ASU , Not-for-Profit Entities: Services Received from Personnel of an Affiliate Employees of a separately governed affiliated entity regularly performs services (in other than an advisory capacity) for, and under the direction of, the recipient entity Should the recipient NFP entity apply the contributed services guidance? 7

8 ASU , Not-for-Profit Entities: Services Received from Personnel of an Affiliate Affiliate - A party that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with an entity Control - Direct or indirect ability to determine the direction of management and policies through ownership, contract, or otherwise - May be evidenced in various ways, including a majority voting interest in the board or through contract or affiliation agreement ASU does not address transactions between affiliates for which the affiliate charges the recipient NFP 8

9 ASU , Not-for-Profit Entities: Services Received from Personnel of an Affiliate Requires a recipient NFP to recognize all services received from personnel of an affiliate that directly benefit the recipient NFP Services should be measured at the cost recognized by the affiliate for the personnel providing those services 9

10 ASU , Not-for-Profit Entities: Services Received from Personnel of an Affiliate Effective prospectively for fiscal years beginning after June 15, 2014, and interim and annual periods thereafter Early adoption is permitted 10

11 ASU , Service Concession Arrangements Service concession arrangement - An arrangement in which a grantor (a public sector entity) engages an operating entity to operate the grantor s infrastructure (for example, airports, roads, and bridges) Under these arrangements, an operating entity may provide the construction, upgrading, or maintenance services 11

12 ASU , Service Concession Arrangements Example: - A local government enters into an arrangement with a private university to operate the government s power plant - University maintains the infrastructure and receives the revenue generated by the plant - Governmental entity determines to whom the power can be provided and at what price. - At the end of the arrangement s term, any residual interest in the power plant reverts to the government 12

13 ASU , Service Concession Arrangements Clarifies that such an arrangement should not be accounted for as a lease Clarifies that such an arrangement should not be accounted for as PPE Right to receive payments might be accounted for as a financial asset, intangible asset, or both 13

14 Impact of Private Company Council Issues ASU , Definition of a Public Business Entity ASU , Accounting for Goodwill ASU , Accounting for Certain Receive- Variable, Pay-Fixed Interest Rate Swaps Simplified Hedge Accounting Approach ASU , Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements 14

15 Impact of Private Company Council Issues FASB has a standing project to consider applicability of any alternatives developed by the PCC for NFPs Goodwill for NFPs discussed at February FASB meeting no decisions made FASB considered simplified hedge accounting approach for NFPs at November meeting - Decided not to add a project to its agenda - Will consider the matter as part of the broader hedging project VIE issue applicability to NFPs not yet discussed by FASB 15

16 NFP Financial Statements Project Objective of this project is to reexamine existing standards for financial statement presentation by NFPs Several recent key decisions made by FASB Exposure draft expected in 2 nd half of

17 Key Decisions: Statement of Functional Expenses Require NFPs to report expenses by nature and retain the requirement to report expenses by function Continue to allow NFPs to present expenses by either function or nature, or both, on the face of the statement of activities or within the notes 17

18 Key Decisions: Statement of Functional Expenses Require NFPs to provide an analysis of all expenses by function and by nature in one location - Statement of activities - Separate statement of expenses (currently called a statement of functional expenses) - Schedule in the notes Analysis would include all expenses, both operating and nonoperating, and would neither require nor preclude functionalization of non-operating expenses Analysis would typically be provided in the form of a matrix, but that specific format would not be required 18

19 Key Decisions: Operating Measure Tentatively decided to define an intermediate operating measure on the basis of two key dimensions: - A mission dimension based on whether resources are from or directed at carrying out an NFP s purpose for existence - An availability dimension based on whether resources are available for current period activities and reflecting both external limitations and internal actions of an NFP s governing board FASB will consider at a future meeting whether the presentation would be required, permitted, or encouraged 19

20 Key Decisions: Presentation of Net Asset Classes Replace existing requirements for three classes of net assets with similar requirements for two classes of net assets - With donor-imposed restrictions - Without donor-imposed restrictions Require disclosure of information about the amount and purposes of board designations of net assets without donor-imposed restrictions 20

21 Key Decisions: Cash Flows Require the direct method for operating activities Remove the requirement for reconciliation Revise cash flow categories - Cash gifts with donor-imposed restrictions to acquire longlived assets for operating purposes = inflows from OA rather than FA - Cash payments to acquire long-lived assets for operating purposes = outflows from OA rather than IA - Cash dividends and interest income = inflows from IA rather than OA - Cash payments of interest expense = outflows from FA rather than OA 21

22 NFP Financial Statements Project Other issues being considered: - Presentation format - Sequencing of line items - Reporting investment returns - Improving information about liquidity 22

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